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Endowment reporting under the new not-for-profit financial statement reporting requirements could be changing again.

On October 27, 2016, the Financial Accounting Standards Board (FASB) issued an exposure draft of a technical correction to clarify the reconciliation disclosure not-for-profit organizations will have to make for their endowment funds.

Unexpected leadership vacancies affect every industry, but with not-for-profits they can be particularly burdensome because they may highlight an organization’s budgetary restrictions, weaknesses in its compensation strategy and larger questions about its retention ability.

Recently we helped a client with a situation that illustrates how important it is to be confident in your leadership pipeline. A fast-growing healthcare-related not-for-profit lost its long-time chief executive officer (CEO) to an unexpected early retirement. No successor had been identified, and the not-for-profit turned to an outside search.

From volunteers to public donors, not-for-profit organizations are vulnerable to fraud for many reasons. Incidents of fraud, even on a small scale, can be devastating to an organization’s bottom line. In its 2016 Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) found that 10.1 percent of fraud cases affected not-for-profit organizations, with an average loss of $100,000 per case. The report serves as a reminder that although private and public companies have higher rates of fraud (37.7 percent and 28.6 percent respectively), not-for-profits should nonetheless have fraud prevention measures in place.

The IRS recently revealed a snapshot of its compliance strategy for the 2017 fiscal year. In late September 2016, the Tax-Exempt and Government Entities Division (TE/GE) released its 2017 fiscal year work plan summarizing results from its 2016 efforts and describing its plans for 2017.

In August 2016, the Financial Accounting Standards Board (FASB) finalized its guidance for the presentation of financial statements for not-for-profit organizations. The modifications take effect for fiscal years beginning after December 15, 2017 (i.e., years ending December 31, 2018, June 30, 2019, etc.).

The tax-exempt bond area is closely overseen and regulated by the IRS tax-exempt bond (TEB) division. In 2016, TEB has been allocating half of its resources to examination casework. Included in the examination casework category are referrals and claims, TEB’s market segmentation program and the division’s compliance check/soft letter program. Given the importance of tax-exempt bond financing to your organization, the complexity of maintaining post-issuance qualification of your bonds, and the IRS’s oversight of this area, your organization should understand the requirements for post-issuance compliance and monitor the use of bond-financed facilities to ensure continuing compliance. The penalties for noncompliance could be costly.

As you may be aware, multiple universities were recently named in class action lawsuits relating to their retirement plans. The lawsuits allege that the institutions, and more importantly, the named fiduciaries of the plan, breached their fiduciary duties by allowing excessive fees for investments and recordkeeping and engaging in multiple recordkeepers.

They also were criticized for using restrictive and underperforming investment options for extended periods. These lawsuits demonstrate that not-for-profit organizations are not exempt from scrutiny and need to focus on fulfilling fiduciary duties and monitoring plan fees and expenses.

Not-for-profit financial statements will receive a significant overhaul with the release of the Financial Accounting Standards Board (FASB)’s Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958) Presentation of Financial Statements of Not-for-Profit Entities. The ASU brings several changes, including the consolidation of net asset classes and enhanced disclosures regarding those net asset classes and governing board designations. In the second part of our series, we’ll look at these changes in more detail.

Like an annual physical, regular financial benchmarking helps not-for-profit organizations assess the health of their operations. Most carry out a series of formal and informal assessments every year, comparing investment returns to market indicators and like-endowments, checking their organization’s spending policies relative to similar groups and benchmarking executive compensation.